Greece's Debt, a New Monetary System, and the Climate Negotiations in Paris

People can't stop talking about the economic crisis in Greece. There are many layers to it, but generally it involves negotiating a restructuring of Greece's debt with the IMF, the European Commission, and the European Central Bank. Some of the debt arose from the Greek government's trade deficits and pension obligations (leading conservatives to blame "government spending"), and some of it is from bank bailouts from the 2008 financial crisis (giving liberals a chance to blame "evil banks"). Two factors compounding the problems are that 1) Greece lacks some of the tools to get itself out of the mess because it does not have its own sovereign currency and 2) austerity policies have arguably prolonged an economic recovery that would help it out of the mess. Syriza, the governing party in Greece, campaigned on a promise to confront its creditors, and has refused their offers of more bailout funds in exchange for more domestic austerity.

Greece is not the only place in trouble with debt. Puerto Rico is also having debt problems. The media often takes a judgmental tone in reporting these problems, with the implication that if you're in debt, you are a bad person (or city, territory, or country). But this is incorrect, because the world's monetary systems are based on debt. If you have money in your wallet, then you are likely holding debt, because most of the world's money is created when it is loaned into existence by banks. Borrowers are charged interest on those loans, but the money to pay the interest is never created. This means that someone must go bankrupt all the time in order to keep the whole system from crashing. And even then, the system still crashes regularly. It is built to crash.

That is not the only problem with the current debt-based monetary system. A certain number of people are made to be constantly unemployed, young people are required to take on thousands or hundreds of thousands of dollars of debt in order to launch their working careers, the price of home ownership is a mortgage (from the Latin for "death gamble") that puts families on a financial precipice where a single health event could cause instant insolvency, and everyone lives in constant economic insecurity. As if that weren't enough, the positive interest rate means economies must constantly grow or else be crushed by debt. Infinite growth is not possible on a finite planet, and the growth machine is bringing us close to ecological tipping points that threaten all of civilization.

But a return to the antiquated Gold Standard would do more harm than good. Gold is austerity incarnate. Instead, the focus should be on designing a monetary system to provide what society needs (financial liquidity), without the perils of debt. A new system should take into account the fact that globally we have reached the biophysical limits to growth, and that future economic activity must be carbon neutral. One such proposal comes from the late Richard Douthwaite's book The Ecology of Money. His original proposal was for four currencies, but it is simplified for this discussion.

The first step is the creation of a local currency for exchange, spent into circulation, not loaned. This is congruent with the writings of the Modern Monetary Theorists (MMT) and the proponents of "Positive money" (as opposed to debt-based money). The second part of the proposal involves a global carbon budget and a new energy-backed currency unit, or "ebcu," which would tie economic activity to the true cost of energy, and take its value from the scarcity of the atmospheric sink for carbon emissions. This could be implemented through a global Cap & Share or Cap & Dividend administered by a Global Climate Trust. The Share approach is described by Indian activist Anandi Sharan as follows, "By monetising the remaining emission space, giving permits to every individual on earth, and letting them sell permits to hydrocarbon producers trading in an ever declining quantity of emission backed currency units, the world can equitably manage the transition to a post-hydrocarbon and post nuclear world."

The negotiating parties at the UN climate conference in Paris this December (called "COP-21") will probably not be discussing anything on this scale. However, a group of activists from the Foundation for the Economics of Sustainability, based in Ireland, will be present at the conference, and hope to spur a conversation about the formation of a Global Climate Trust that can enforce a global carbon budget while returning the value created by that resource scarcity back to people on an equity basis. Over time, as more countries face debt deflation and ecological limits, they may become a voice for a global system more aligned with the reality of the world's situation.

In the short run, Greece and the European "troika" may try to strike a balance between debt forgiveness and default. Debt forgiveness would allow the creditors to get some money back, preserve the EU, and give a rare victory to people over banks. If the banks push Greece into default, Greece may leave the euro and reissue its own currency. Then the banks would get no money back, the EU could disintegrate and extremist governments may rise out of the economic ashes. But the austerity mindset may be hard for them to shake.

The amount of debt forgiveness that Greece is able to obtain may be an indicator for how negotiations will go for the world's ecological debts in Paris.